The firm has an ownership stake in Central Park Tower, a 1,550-foot-tall condominium that's just about to top out on West 57th Street, and it recently finished building a luxury apartment tower at 138 E. 50th St., where it has yet to sell a single unit. Only 19 of the project's 124 units are in contract.

"I don't worry about it," said Edward Martin, the vice chairman of the $75 billion Chinese government–owned fund's U.S. arm, referring to the moribund market for upper-tier apartments. "We have the right team. I think we're going to have success."

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Martin didn’t have the same optimism about recouping the millions of dollars his firm invested in another recent deal where the die has already been cast. SMI and a partner sold a majority interest in July in a condo development site at 520 Fifth Ave., taking a roughly $65 million loss on the $270 million the pair paid for the property four years ago, according to city property records—a heavy loss that is a foreboding of potentially more write-offs to come.

But SMI is far from alone. Lately, a growing list of foreign real estate investors, after pouring billions of dollars into major New York City real estate purchases in recent years, have found themselves in a similar financial predicament. Several made ill-timed bets on the city’s condo market—a sector that has swamped investors at home and abroad. Foreign firms, however, have appeared to take some of the steepest losses.

Two separate foreclosure proceedings recently were begun at 125 Greenwich St., an 88-story apartment tower in Lower Manhattan that is being built by a partnership between Italian firm Bizzi & Partners Development, Chinese investment company Cindat Capital Management and domestic concerns including real estate executive Howard Lorber of New York.

Anbang Insurance, a Beijing-based firm that was seized last year by Chinese authorities amid financial turmoil and fraud allegations, is converting the Waldorf Astoria hotel, which it purchased in 2014 for a record $1.95 billion, into condo apartments. Many real estate executives doubt the project will turn a profit.

Sales were so poor at the recently completed luxury condo tower 53 W. 53rd St. that Pontiac Land Group, a real estate investment firm in Singapore that built the spire with Goldman Sachs and Hines, quarreled with its partners over who had the power to set prices for the multimillion-dollar units. Only a little more than 30% of the building’s 145 apartments have been sold, four years after sales began at the 950-foot-tall building.

“Some of the most troubled projects in the market right now appear to have foreign sponsors,” said Jonathan Miller, president and CEO of Miller Samuel, a residential appraisal and analytics firm. “Many of them came in late in the cycle, paid huge sums and now have a lot of apartments to sell in a market that is saturated with product. It’s going to be difficult to capture profits on these deals.”

The track record of bad deals crosses over into other asset types where local investors haven’t felt commensurate financial pain.

The Japanese real estate company Unizo Holdings, for instance, finished selling off a trio of Midtown office buildings in October for a combined $30 million loss. The Abu Dhabi government sold a controlling interest in the Chrysler Building, a 77-story landmarked Art Deco office tower, for $150 million in March, about $650 million less than it and a partner paid a decade ago.

Last month German-based investment fund Deka revealed in a lawsuit that it had been arranging to sell the Marriott East Side Hotel on Lexington Avenue for $100 million less than it and a partner paid for the 655-room property in 2015. The loss came even as other hotels have performed strongly, lifted by a historic, years-long surge in tourism. This year the city is on track to draw a record 67 million visitors.

Wafra, a $24 billion Kuwaiti state-owned investment fund, just sold a controlling interest in the 133-unit rental apartment building 2 Cooper Square for a $50 million loss, despite the city’s rental market performing strongly compared with high-end condo sales.

“The rental apartment sector has been one of the strongest investment categories in recent years,” said Bob Knakal, JLL’s New York–area chairman of investment sales.

Some observers draw parallels between the current washout and past waves of foreign investment that ended in heavy financial wreckage. The Japanese famously bought up major real estate assets in the city in the late 1980s, only to sell several of them at substantial losses a few years later during the recession of the early 1990s. One similarity between then and now is the way foreign buyers rushed into the city’s property market, paying peak values just as it was cresting.

“The market definitely hit its peak in 2015 and has been falling ever since across property types,” Knakal said. Several sales experts said values, in general, had dropped by about 10% between then and now.

The pain felt by foreign firms in several instances has outpaced that relatively slight dip. And other foreign firms have placed such large bets on the city's property market that, even if their losses hem closer to the modest market-wide drop, it adds up to huge sums of lost cash.

HNA Group, a China-based investment conglomerate, bought 245 Park Ave., a 47-story, 1.8 million-square-foot office building for $2.2 billion in 2017. That’s hundreds of millions of dollars more than some experts say the tower is now worth. Last year HNA Group brought on a local partner, real estate investment trust SL Green, to invest in the tower and help operate it after appearing to struggle with leasing.

“They paid 5% or 10% more than anyone else, right when pricing was at the top of the market,” said Scott Rechler, chairman of RXR Realty, a major owner of office properties in the city. “I think the answer is they overpaid.”

Enter the disrupters

One factor the foreign firms might have overlooked is the growing complexity of owning and developing real estate in the city—along with a new crop of startups that entered and disrupted the property market.

“New York City is a unique and tough market for investors, with pitfalls at every turn—zoning, landmarking, unions, community boards, local and state politicians, layers of taxes and fines,” said Mary Ann Tighe, New York–area CEO of CBRE. “New York City challenges its real estate investors and developers to jump every hurdle—or fail. Many foreign firms aren’t prepared for it.”

In 2015 Unizo purchased the 400,000-square-foot office building 321 W. 44th St. for $165 million and the 311,000-square-foot office property 370 Lexington Ave.for nearly $250 million in separate transactions. The office leasing market performed strongly in the years following the deal, but the buildings lost millions of dollars in value nonetheless because of a key nuance Unizo missed: Both properties cater to smaller office tenants, a segment of the leasing market that increasingly has been dominated by coworking companies such as WeWork.

Coworking providers offer tenants a ready-made office environment, complete with furniture, conference spaces and perks such as refreshments, snacks and other amenities.

A real estate executive who worked with Unizo on a part of its New York portfolio said decision-making executives at the company were based in Tokyo and slow to acknowledge the shifting market here. They hesitated to spend the millions of dollars necessary to outfit the two buildings’ vacant spaces with ready-made office installations so they could better compete.

“The change happened very quickly,” said the executive, who didn’t want to be identified out of concerns his comments would offend the firm. “They were wary of advice from local experts and wanted to import their way of doing business. But it didn’t translate.”

Unizo sold 370 Lexington Ave. last year for a nearly $60 million loss and 321 W. 44th St. for a roughly $15 million loss. It managed to mitigate the financial damage by selling a third property, 440 Third Ave., for a $40 million profit.

Deka’s purchase of the Marriott East Side Hotel offers a similar example. It purchased the hotel for $270 million in 2015, encouraged by strong data. Revenue at hotels on Manhattan’s East Side had posted solid annual gains in the years just prior to the firm’s acquisition of the property. According to a JLL report, revenue per available room, RevPAR, jumped 9.3% in 2010, 4.8% in 2011, 6.1% in 2012, 2.9% in 2013 and 6.2% in 2014.

But rapid shifts were about to transpire in the city’s hospitality sector.

A surge of new hotel development and competition from Airbnb has driven down room rates at older hotels in staid locations such as Midtown East. Instead of rising, RevPAR on the East Side fell by 2.2% in 2015, 5.2% in 2016 and 4% in 2017 before rebounding to increase by 4.2% last year, according to JLL’s data.

Meanwhile the costs of employing the Marriott East Side’s unionized labor force have far outpaced the wage growth at a new crop of nonunion hotels.

In a lawsuit filed against a minority partner in the hotel, Deka revealed it had tried to sell the property this year for $174 million, almost $100 million less than it paid.

A spokesman for Deka said, “Please understand that we don’t comment.”

Sunshine Insurance Group, a Beijing-based financial firm, grabbed attention in the city’s hospitality industry in 2015 when it purchased the recently built 114-room Baccarat Hotel on West 53rd Street for more than $230 million—a record sum on a per-room basis. The hotel’s staff recently unionized, joining the city’s Hotel Trades Council in a move that is expected to push up labor expenses substantially and put a significant dent in the hostelry’s value.

“Sunshine was completely taken by surprise that the staff unionized,” a source familiar with the hotel said.

Local knowledge

The city’s real estate market hasn’t been a bloodbath for all foreign buyers. Oxford Properties Group of Toronto partnered with the Related Cos. in the $25 billion Hudson Yards complex. The project has been a major success, attracting office tenants including BlackRock, Coach, Time Warner and now Facebook.

Oxford recently struck off on its own to buy St. John’s Terminal, a large commercial building on the West Side, arranging to redevelop it for Google.

“I can’t say what other foreign firms have done, but I know that our approach in New York, as in other markets around the globe, is not to come in and do a deal, but to build a business for the long term,” Oxford CEO Michael Turner said. “We spent time learning this market before doing anything here. Without us having those skills that we built over many years, we wouldn’t have been able to do the St. John’s project on our own.”

Turner said he has been spending so much time in New York in recent years that he recently decided to relocate here with his family.

“I think a lot of the real estate industry at this point would call us a local player,” he said, “not a foreigner.”

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